Go To Doc Sharing For The Detailed Course Project

Title Pagego To Doc Sharing For The Detailed Course Project Instructio

Go to Doc Sharing for the detailed Course Project instructions and grading rubric. Complete your Title page, including your name, the course, the date, your instructor's name, and the title for the project.

Complete one paragraph profiling each company's business, including information such as a brief history, location, number of employees, and products sold. Reference any websites used for profiles on the Bibliography tab.

Use the provided Excel spreadsheet to compute and interpret ratios for both companies, showing calculations and commentary. Ratios include earnings per share, current ratio, gross profit margin, net profit margin, inventory turnover, days' inventory outstanding, accounts receivable turnover, days' sales outstanding, asset turnover, return on total assets, debt ratio, times interest earned ratio, dividend yield, return on equity, free cash flow, and price/earnings ratio. Compare these ratios between the two companies, explaining what each ratio indicates and whether higher or lower values are preferable.

Prepare a summary and conclusion comparing the overall performance of the companies, indicating which is a better investment and why, based on the ratio analysis.

Paper For Above instruction

Financial ratio analysis provides critical insights into the operational efficiency, liquidity, solvency, and profitability of companies. In this report, we compare Tootsie Roll Industries and Hershey Company, two leading confectionery manufacturers, to evaluate their financial health and market position as of their 2012 fiscal year. Through detailed ratio calculations and interpretative commentary, we aim to determine which company presents a more attractive investment opportunity based on their financial strengths and weaknesses.

Company Profiles

Tootsie Roll Industries was founded in 1896 in New York and subsequently moved its headquarters to Chicago. With a history rooted in producing chewy chocolates, Tootsie Roll has expanded its product line to include a variety of branded candies like Tootsie Rolls, Tootsie Pop, Charleston Chew, and Junior Mints. The company employs approximately 2,200 full-time staff and operates across North America, distributing its products in over 75 countries. In 2012, Tootsie Roll reported net sales of $549.9 million, demonstrating its significant market share within the confectionery industry.

Hershey Company, established by Milton S. Hershey in 1893, is headquartered in Hershey, Pennsylvania, and boasts over 12,100 employees. Hershey's product portfolio is world-renowned, including iconic brands such as Hershey's Milk Chocolate Bar, Kisses, Reese's, Twizzlers, Almond Joy, and Kit Kat. In 2012, Hershey posted net sales of approximately $6.6 billion, positioning it as a dominant player in the confectionery market with substantial international distribution channels.

Ratio Analysis and Interpretation

Liquidity Ratios

The current ratio measures a company's ability to meet its short-term obligations. Tootsie Roll's current assets amounted to $197,241,000 against current liabilities of $60,765,000, resulting in a current ratio of 3.25. Hershey's current assets were $2,113,485,000 with current liabilities of $1,471,110,000, resulting in a ratio of 1.44. Generally, a higher current ratio indicates better liquidity, and Tootsie Roll's superior ratio suggests a stronger short-term financial cushion. This higher ratio underscores Tootsie Roll's conservative liquidity management, which is appealing during economic uncertainties.

Profitability Ratios

Gross profit margin reflects the efficiency of production and pricing strategies. Tootsie Roll's gross profit was $183.3 million, representing 33.3% of net sales, whereas Hershey's gross margin was 43.0%, indicating higher production efficiency or pricing power. The net profit margin further supports Hershey's profitability superiority, with a net income of $660.9 million (9.9%) compared to Tootsie Roll's $52 million (9.5%). Hershey's higher margins suggest better cost control and economies of scale, making it more profitable relative to sales.

Leverage and Solvency Ratios

The debt ratio indicates the proportion of assets financed through debt. Tootsie Roll's debt ratio was 23.3%, significantly lower than Hershey's 84.0%. This lower leverage makes Tootsie Roll less risky and more solvent in the face of financial downturns. The times-interest-earned ratio, which measures ability to pay interest, was 542.3 for Tootsie Roll versus 11.6 for Hershey, emphasizing Tootsie Roll's strong capacity to cover interest expenses. These leverage ratios portray Tootsie Roll as a financially safer investment with lower debt obligations.

Market and Investment Ratios

The dividend yield, based on Yahoo Finance data, was 1.0% for Tootsie Roll and 2.0% for Hershey, reflecting Hershey's more aggressive dividend policy. The return on equity further differentiates the two, with Hershey's remarkable 68.5% compared to Tootsie Roll's modest 8.0%. This indicates Hershey's superior ability to generate profit from shareholders’ equity, making it a more attractive choice for growth and income-focused investors. Additionally, Hershey's free cash flow of $836.1 million compared to Tootsie Roll's $93 million represents a substantial resource pool for potential investments or dividend growth.

Overall Comparison and Conclusion

The analysis demonstrates that Tootsie Roll holds a decisive edge in liquidity and leverage, offering a safer investment profile during turbulent economic conditions. Its conservative debt management reduces financial risk, and its high current ratio provides assurance of short-term liquidity. Conversely, Hershey dominates in profitability and market performance metrics, favoring investors seeking growth and higher returns on equity. Hershey's higher profit margins, return on equity, dividend yield, and free cash flow reflect its efficient operations and strong market position.

In conclusion, for conservative investors prioritizing safety and stability, Tootsie Roll appears to be a more suitable investment due to its lower debt and higher liquidity ratios. For investors inclined towards growth potential and income, Hershey offers compelling advantages with superior profitability ratios and dividend policies. Ultimately, the choice depends on the investor’s risk tolerance and investment objectives. Both companies show resilience and strategic strengths, but Hershey’s profitability and market performance make it the more attractive long-term growth prospect, whereas Tootsie Roll’s conservative financial structure provides greater safety.

References

  • Harrison, W. T., Horngren, C. T., & Thomas, C. W. (2013). Financial Accounting (9th ed.). Pearson Education, Inc.
  • Yahoo Finance. (2013). Tootsie Roll Industries Stock Data. Retrieved from https://finance.yahoo.com
  • Yahoo Finance. (2013). Hershey Company Stock Data. Retrieved from https://finance.yahoo.com
  • Hershey Company. (2013). 2012 Annual Report. Retrieved from https://www.thehersheycompany.com
  • Tootsie Roll Industries. (2013). 2012 Annual Report. Retrieved from https://www.tootsie.com
  • BigCharts. (2013). Historical Stock Quotes. Retrieved from https://bigcharts.com
  • Gibson, C. H. (2012). Financial Reporting & Analysis (11th ed.). Cengage Learning.
  • White, G. I., Sondhi, A. C., & Fried, D. (2012). The Analysis and Use of Financial Statements. Wiley.
  • Penman, S. H. (2013). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
  • Brigham, E. F., & Houston, J. F. (2011). Fundamentals of Financial Management (11th ed.). Cengage Learning.

Related Assignments